The CGA figures do not refer to off-Budget borrowings but provide an indication of such clever expenditure management tactics. For instance, the government’s food subsidies bill for 2018-19 is now estimated at Rs 1.02 trillion, a reduction of over Rs 69,000 crore compared to the revised estimates of Rs 1.71 trillion, mentioned in the interim Budget. How did the government cut its food subsidies bill by 40 per cent? Well, by simply asking the FCI
to borrow and meet the expenditure. Similarly, expenditure compression of another Rs 63,000 crore was achieved by transferring the load of various schemes for housing, irrigation and rural electrification to other entities like Nabard, Hudco, NHB
The shortfall was now reduced to only Rs 11,000 crore. Thus, the government’s borrowing requirement or the fiscal deficit
went up from Rs 6.34 trillion to Rs 6.45 trillion. But this slippage was hardly a problem. The nominal size of GDP
for 2018-19 had been revised upwards from Rs 188.41 trillion to Rs 190.1 trillion. The expanded GDP
base helped retain the gross fiscal deficit
at 3.4 per cent of GDP.
Though the fiscal deficit target in the revised estimates for 2018-19 was met, the manner in which it was achieved raised a few disturbing questions. One, why was the finance ministry so wide of the mark in projecting its tax revenue numbers for 2018-19? To have got its revised estimates on tax revenues completely wrong, resulting in a slippage of 11 per cent, is nothing but a shame.
The advancement of the Budget presentation by about four weeks may have speeded up the rollout of expenditure on various schemes right from the start of the new year, but the government’s ability to estimate its tax revenues for the full year has suffered hugely. The damage it does to the credibility and achievability of revenue targets for the next year is even worse.
For instance, with a 11 per cent drop in its actual net tax revenues compared to the revised estimates for 2018-19, the task of achieving the targets for 2019-20 will become even more formidable. Instead of a growth rate of 15 per cent, the required growth rate now will be steeper at 29 per cent. The challenge of fiscal consolidation in 2019-20 thus is already very daunting.
A related question pertains to how the borrowings of the state-owned entities would be settled and how these would be treated in the accounts of the following years. These borrowings by public sector entities should strictly reflect in the government’s account. For instance, the government’s actual fiscal deficit would have ballooned to 4.1 per cent of GDP if it had itself made the borrowings.
Burdening the public sector with the government’s borrowings is a travesty of the government’s stated commitment to the goals of public sector autonomy and reforms. Such recourse to off-Budget borrowings also underlines the need for maintaining a stricter vigil on overall public sector borrowing of the government in order to gauge its actual fiscal consolidation efforts.
Worse is the recent move by the Reserve Bank of India to exempt public sector entities from single-account exposure limits for banks. This will allow public sector companies to borrow from banks without worrying about the single-account exposure limit of 20 per cent of the bank’s available eligible capital base at all times. Is this relaxation aimed at allowing public sector entities to borrow freely from banks to meet expenditure that should ideally have been borne by the exchequer?
Finally, such off-Budget borrowings provide additional relief to the government by helping the economy achieve a better economic growth number. If the government had indeed cut its expenditure by Rs 1.45 trillion in the last quarter of 2018-19, this squeeze would have reflected in the government consumption numbers in last year’s fourth-quarter GDP estimate.
True, the capex cut of Rs 13,000 crore was real. But the remaining cut of Rs 1.32 trillion was not real — this expenditure burden was shifted to public sector entities through their borrowings. Unsurprisingly, government consumption grew by over 13 per cent in the last quarter of 2018-19. If the government had really cut its expenditure, government consumption growth would not have been so high and the January-March 2019 GDP growth numbers could have been lower than 5.8 per cent.
Without doubt, the miracle of achieving the fiscal deficit target in 2018-19 has many features that are deeply troubling.